Padmore v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 19 May 1989 |
| Date | 19 May 1989 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal.
Fox, Stocker and Staughton L.JJ.
Mr. Andrew Park Q.C. and Mr. Alan Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. Peter Whiteman Q.C. and Mr. Patrick Soares (instructed by Needham & Grant) for the taxpayer.
The following cases were referred to in the judgment of Fox L.J.
Colquhoun v. Brooks TAX(1889) 2 T.C. 490
Reed (H.M.I.T.) v. Young TAXTAX[1983] BTC 430; [1986] BTC 242
Sadler v. Whiteman & Anor. ELR[1910] 1 K.B. 868
Income tax - Double tax relief - Whether income of a UK resident partner in a Jersey partnership from the partnership trade was exempt from UK tax as the "industrial or commercial profits of a Jersey enterprise" - Whether Jersey partnership was a body of persons resident in Jersey for purposes of Jersey tax - Double Taxation Relief (Taxes on Income) (Jersey) Order 1952 (S.I. 1952 No. 1216); Income and Corporation Taxes Act 1970 section 153 section 526 subsec-or-para (5)Income and Corporation Taxes Act 1970, sec. 153, 526(5) (now Income and Corporation Taxes Act 1988, Income and Corporation Taxes Act 1988 section 112 section 832 subsec-or-para (1)sec. 112, 832(1)).
This was an appeal by the Crown from a decision of Peter Gibson J. ([1987] BTC 3) that the effect of the arrangement scheduled to the Double Taxation Relief (Taxes on Income) (Jersey) Order 1952 (S.I. 1952 No. 1216) ("the arrangement") was that a UK resident's share of the profits of a Jersey partnership was not subject to tax in the UK.
The taxpayer was one of over 100 UK resident partners in a partnership ("CPA") managed and controlled in Jersey which carried on the business of providing a world-wide renewals service for patents, trade marks etc., so that their owners should not lose their rights by failure to renew them periodically in accordance with the relevant law. CPA had no permanent establishment in the UK and the partnership profits were assessed to Jersey tax under the Income Tax (Jersey) Law 1961, Art. 74(1) which corresponded to the Income and Corporation Taxes Act 1970 section 152Income and Corporation Taxes Act 1970, sec. 152.
The taxpayer appealed against assessment to UK tax under Income and Corporation Taxes Act 1988Sch. D, Case V for the years from 1975-76 to 1981-82 in respect of his share of the partnership profits. He claimed that under Income and Corporation Taxes Act 1970 section 497 subsec-or-para (1)sec. 497(1)(a) of the 1970 Act the profits of CPA were exempt from UK tax by virtue of Art. 3(2) of the arrangement as "industrial or commercial profits of a Jersey enterprise".
By Art. 2(1)(h) of the arrangement "Jersey enterprise" was defined as "an industrial or commercial enterprise or undertaking carried on by a resident of Jersey"; "resident of Jersey" meant "any person who is resident in Jersey for the purposes of Jersey tax and not resident in the United Kingdom for the purposes of United Kingdom tax" (Art. 2(1)(f)); and "person" included any "body of persons corporate or not corporate" (Art. 2(1)(d)). The taxpayer contended that CPA was a non-corporate body of persons resident in Jersey whose profits were exempt from UK tax under Art. 3(2) of the arrangement and, since the taxpayer's share in those profits was no different in quality or origin from the entirety of the profits, his share was exempt from UK tax.
The Crown accepted that CPA carried on an industrial or commercial undertaking and that the profits in question were commercial profits but contended that the exemption from UK tax provided by Art. 3(2) of the arrangement was concerned solely with the tax liability of a business controlled and managed abroad which received profits from activities in the UK, as opposed to the liability of a UK resident receiving income from a business carried on abroad.
The Crown contended further that a partnership was not within the definition of a "body of persons" in both the Income and Corporation Taxes Act 1970 section 526 subsec-or-para (5)Income and Corporation Taxes Act 1970, sec. 526(5) and the Income Tax (Jersey) Law 1961, Art. 3(1), nor was it resident in Jersey for the purposes of Jersey tax but not resident in the UK for the purposes of UK tax.
Held, dismissing the Crown's appeal:
1. The definition of a "body of persons" in Income and Corporation Taxes Act 1970 section 526 subsec-or-para (5)sec. 526(5), which would have excluded a partnership, was not applicable. The definition in para. 2(1)(d) was comprehensive. If the statutory definition was intended to apply, the words "corporate or not corporate" would not have been added. A partnership was, as a matter of the ordinary use of English, a body of persons.
2. The correct test of residence for a partnership was the location of management and control. Although the test of management and control in Income and Corporation Taxes Act 1970 section 153 subsec-or-para (1)sec. 153(1) of the 1970 Act and Art. 76(1) of the Jersey Law of 1961 was negative in nature (deeming residence elsewhere if management and control were outside the respective territories), a partnership must have a residence somewhere. It was a reasonable inference that in Jersey law a partnership managed and controlled in Jersey was resident there for tax purposes.
3. If a partner was entitled, as a partner, to a share of the income of the partnership and that income itself was exempted from UK tax, the partner's share was similarly exempted.
By a notice of appeal dated 14 January 1987 the Commissioners of Inland Revenue appealed against the decision of Peter Gibson J. given on 17 December 1986 on the following grounds:
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(2) The partnership Computer Patent Annuities was not within the expression "any body of persons, corporate or not corporate" contained in Art. 2(1)(d) of the double tax arrangement.
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(3) The partnership was not a resident of Jersey within Art. 2(1)(f) of the arrangement.
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(4) Alternatively the partnership was only a resident of Jersey within Art. 2(1)(f) in so far as its individual members were residents of Jersey and accordingly was not a resident of Jersey for the purposes of the application of the arrangement to the taxpayer.
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(5) Even if the partnership was a resident of Jersey for the purposes of the arrangement, nevertheless the exemption conferred by Art. 3(2) applied to any liability to UK tax in respect of the profits of the partnership as a whole and did not extend to the personal liability to UK tax of the taxpayer, as an individual resident in the UK, in respect of his share of the profits.
Fox L.J.: This is an appeal by the Commissioners of Inland Revenue from a decision of Peter Gibson J.
The case is concerned with the effect of the UK/Jersey double taxation arrangement of 24 June 1952 (S.I. 1952 No. 1216), to which I will refer as "the arrangement". The taxpayer, Mr. Padmore, claims relief from income tax for the years of assessment 1975-76 to 1981-82 inclusive. That income was Mr. Padmore's share of the profits of a partnership carrying on the business of providing a world-wide renewals service for patents, trade marks and the like, so that the owners thereof do not lose their rights by failure to renew periodically in accordance with the governing law.
The partnership is called Computer Patent Annuities ("CPA"). It was established in April 1969 in Jersey. There have been changes of partners from time to time, and the current partnership deed was entered into in 1979. The deed provides that it is to be construed in accordance with the law of Jersey.
There are a large number of partners - about 140 or so at the time the case was heard by the Special Commissioner. They are all patent agents, or members of the Institute of Trade Marks Agents. The great majority of them are resident in the UK, and are partners or employees in firms of patent agents.
The business of CPA has always been carried on in Jersey. Its day-to-day business is carried on by two managing partners who are resident in Jersey. General meetings of the partners are held in Jersey or Guernsey only and are held about four times a year, but more often as circumstances require. These meetings determine policy which is then given effect to by the Jersey managing partners. It is not in dispute that the control and management of CPA is carried on outside the UK for the purposes of the Income and Corporation Taxes Act1970.
Mr. Padmore has been a partner in CPA since 1 February 1976. At all material times he was resident in the UK.
Mr. Padmore's claim for relief from UK income tax in respect of his share of the profits of CPA is based upon the provisions of Art. 3(2) of the arrangement, which is in the following terms:
The industrial or commercial profits of a Jersey enterprise shall not be subject to United Kingdom tax unless the enterprise is engaged in trade or business in the United Kingdom through a permanent establishment situated therein. If it is so engaged, tax may be imposed on those profits by the United Kingdom, but only on so much of them as is attributable to that permanent establishment.
Article 2 of the arrangement contains certain definitions, including the following:
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The term "tax" means United Kingdom tax or Jersey tax, as the context requires;
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The term "person" includes any body of persons, corporate or not corporate;
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The term "company" includes any body corporate;
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The terms "resident of the United Kingdom" and "resident of Jersey" mean respectively any person who is resident in the United Kingdom for the purposes of United Kingdom tax and not resident in Jersey for the purposes of Jersey tax and any person who is resident in Jersey for the purposes of Jersey tax and not resident in the United Kingdom for the purposes of United Kingdom tax; and a company shall be regarded as resident in the United Kingdom if its business is managed and controlled in the United Kingdom and as resident in...
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